Landmark Cases on Assessment Procedure

Assessment proceedings conclude and become final if a scrutiny notice under Section 143(2) is not served within the prescribed statutory period. This case also clarified the historical position that reassessment under Section 147/148 was restricted to issues for which reasons were recorded, a view superseded by Explanation 3 to Section 147.

Passing a final assessment order under Section 143(3) directly, without first issuing a draft assessment order under Section 144C(1) for an eligible assessee, constitutes a fundamental jurisdictional defect. This defect cannot be cured by a subsequent corrigendum, especially if issued beyond the prescribed period of limitation.

A statute's object is to ascertain legislative intent from its plain language, avoiding any construction that adds, substitutes, or rejects words as meaningless. This principle applies to interpreting statutory deadlines, such as those for Transfer Pricing Officer and Assessing Officer orders under Section 153, requiring strict calculation based on the literal meaning of terms like "before" and "prior to".

The rule of consistency requires that in the absence of any change in material facts or law, a different view or decision on an issue cannot be adopted for subsequent assessment years, thus ensuring uniformity in tax assessments.

Income accrues when it becomes due, vesting the assessee with the right to claim the amount, even if payment is not immediate. It requires a corresponding liability from the other party to pay, emphasizing real rather than hypothetical accrual, particularly for assessees using the mercantile system of accounting.

The law applicable for an assessment year is the law as it stands amended on the first day of April of that financial year. Any amendments coming into force after April 1st do not apply to the assessments for that year.

The Assessing Officer must first record satisfaction that the assessee’s claim regarding expenditure incurred for earning exempt income is incorrect or unreasonable before applying the provisions of Rule 8D to determine such disallowance under Section 14A(2) of the Income Tax Act.

The legislature is presumed not to enact provisions that defeat the purpose of other related provisions or take away with one hand what it gives with the other, a principle applied in the interpretation of tax statutes.

The Commissioner's approval for an assessment order requires a proper and thorough application of mind and scrutiny, reflecting a judicial approach, rather than mere formal acceptance.

The Supreme Court holds that legislative intent must be ascertained by reading the statute as a whole, construing one provision with reference to others to ensure a consistent enactment. Courts must consider the entire statute and its setting, not just the specific clauses, even if the language used has some inexactitude.

The term 'tax' includes surcharge and cess. Surcharge and additional surcharge are considered components of income tax, which can be levied as a basic charge, surcharge, special surcharge, and additional surcharge.

Assessment is an integrated process that includes both the determination of the assessee's total income or loss and the calculation of the tax payable, as required by Section 143(3). This process culminates with the issuance of a notice of demand under Section 156.

An assessment order passed beyond the period of limitation prescribed by section 144C(13) read with section 153 of the Act is liable to be quashed.

Circulars and instructions issued by the Central Board of Direct Taxes (CBDT) under Section 119 of the Income Tax Act have the force of law and are binding on all income tax authorities. These circulars can mitigate the rigour of statutory provisions, provide administrative relief, and ensure uniform application of the Act for the benefit of the assessee.

An Assessing Officer cannot make ad hoc disallowances or estimate an assessee's income if the books of account have not been rejected under Section 145(3) of the Income-tax Act.

Section 6 of the General Clauses Act, which preserves rights and liabilities under repealed statutes, does not automatically apply to a mere omission of a statutory provision unless the omitting enactment specifically provides for it, thereby affecting the continuation of pending proceedings.

A tax amendment explicitly stating an effective date applies prospectively from that date. Even if an amendment is labelled 'for removal of doubts,' it cannot be presumed retrospective if it alters or changes the law as it earlier stood.

Tax authorities are obligated to act in accordance with the law and collect only legitimate taxes. They must assist an assessee who is over-assessed due to mistake or misconception, even if the assessee initially admitted income but later disputes it with corroborative evidence.

The decision of the jurisdictional High Court is binding on Income Tax Authorities and the Tribunal within its jurisdiction. Contrary decisions from other High Courts are not relevant, and a point decided by the jurisdictional High Court can no longer be considered a debatable issue.

The rule of strict construction applies to a taxing provision that creates a charge for tax, but machinery provisions for making assessments are interpreted liberally. This distinction ensures that while the tax burden is clearly established, procedural aspects are construed to facilitate tax collection.

The court interprets the law as it is and cannot legislate by adding or subtracting from a statutory provision. Legislative casus omissus cannot be supplied by the judicial interpretative process, as it is for the Legislature to amend the law.

The heads of income specified in the Income Tax Act are mutually exclusive, requiring any item of income to be charged and computed solely under its specific statutory head, with Section 56 (Income from Other Sources) serving as a residuary provision.

The exercise of power under Section 142(2A) of the Income Tax Act requires a pre-decisional hearing. The Income Tax Appellate Tribunal (ITAT) cannot examine the validity of such an order to contend that the assessment is time-barred.

There can be no estoppel against the statute, meaning tax cannot be levied or collected without express authority of law. An appellate authority may adjudicate additional claims or legal contentions to ensure the correct tax liability is determined.

For claiming relief under Chapter VI-A deductions like Section 80IB or 80IA, the audit report in Form 10CCB is not mandatory to be filed with the return of income, but can be submitted before the assessment is completed.

Conferment of jurisdiction is a legislative function that cannot be granted by consent or by a superior court. Any order or decree passed without jurisdiction is a nullity, rendering it void, and this issue can be raised at any stage of the proceedings, including in appeal or execution.

The requirement to file an audit report along with the return of income for claiming deductions under sections like 80-IA(7) or 80J(6A) is directory, not mandatory, and can be filed at any time before the assessment is finalized.

A Delhi Bench of the Tribunal, in cases including Meghna Gupta vs ACIT, has consistently taken a view similar to other benches on certain tax issues. This view is referenced alongside decisions of the Karnataka and Gujarat High Courts.

The revenue is strictly bound by the allegations, claims, or grounds specified in the show cause notice and cannot raise new pleas or invoke rules not mentioned in the original notice at a later stage of the proceedings.

Regularly maintained and audited books of account, free from auditor qualifications, are presumed correct. The Revenue bears the onus to prove specific defects or unreliability to justify rejecting such books under Section 145(3) or making additions.

A statutory authority vested with discretion must exercise that power independently, based on its own judgment, and not under the dictation or instructions of a higher authority. Exercising discretion under superior direction constitutes a failure to exercise it at all.

A disallowance under Section 143(1)(a)(iii) for a 'prima facie inadmissible' claim is only permissible if its inadmissibility is evident on the face of the return, requiring no further inquiry. If a claim necessitates further investigation, it cannot be disallowed without providing the assessee an opportunity of hearing.

A tax provision is retrospective only if legislative intent is explicit or if it is purely clarificatory and does not alter existing law. Provisions framed 'for the removal of doubts' are not presumed to be retrospective if they change the law as it stood.

The Supreme Court holds that when the Legislature does not make any amendment to a law, there is a presumption that the judicial interpretation of that law stands accepted by the Legislature.

An administrative authority must form a clear and unambiguous opinion as a jurisdictional threshold before initiating proceedings or passing an order. While detailed reasons may not be required at the prima facie stage, the authority's decision must reflect its application of mind and be supported by some reasoning.

Tax assessments must be made according to the law in existence during the relevant assessment year. A new statutory explanation or amendment, even if effective retrospectively, does not apply to pending assessments of prior years if it takes away the vested rights of the assessees.

An item not taxable by law cannot be made taxable merely because the assessee offered it under a misconception of fact or law. Charging provisions must be strictly construed, with any ambiguity favoring the assessee, and tax authorities should assist assessees to levy only legitimate taxes, even allowing new claims on appeal.

Dulhabhai v. State of M.P. established seven guiding principles for determining when a civil court's jurisdiction is barred, particularly concerning challenges to assessments made under special statutes that provide their own remedies. It clarifies that an express bar of jurisdiction may exist, and the adequacy of remedies provided by the special Act is relevant but not always decisive under Section 9 of the Code of Civil Procedure.

The requirement to file an audit report along with the return of income for claiming specified deductions, such as under Section 80J or 80-IA, is directory and not mandatory. Such an audit report can be filed at any time before the assessment is framed or completed under Section 143(1).

The Assessing Officer's power to direct a special audit under Section 142(2A) requires an objective assessment of account complexity, not subjective satisfaction. Accounts are 'complex' only if they are genuinely difficult to understand, and the AO must first make a genuine attempt to comprehend them before ordering a special audit.

There is no vested right in procedure, and the legislature can provide that certain procedural provisions do not apply to a particular trial.

An appellate authority, such as the Tribunal, can grant relief to an assessee even if the assessee has over-assessed itself in the return of income.

Profits cannot be estimated by the tax authorities unless the assessee's books of account have been formally rejected.

A notice issued under Section 148 by a Jurisdictional Assessing Officer is invalid if it violates Section 151A and the related CBDT notification for faceless assessments, thereby defeating the scheme's purpose.

A subsequent amendment cannot impose a new tax burden or liability for a period when such liability did not exist. Therefore, additional tax or penalty cannot be levied for non-disclosure of income made taxable retrospectively by an amendment not in force at the time of the original return.

Tax can only be levied or collected by authority of law, as mandated by Article 265 of the Constitution; consequently, any tax collected contrary to law must be refunded.

Tax litigation is not an adversarial process; the Assessing Officer and Tribunal have a duty to determine the assessee's correct taxable income. A valid claim, such as an exemption, cannot be denied merely because it was not explicitly made by the assessee.

An assessment framed under Section 143(3) is invalid if the Assessing Officer fails to issue a notice under Section 143(2) of the Income-tax Act within the specified time period, as the AO lacks jurisdiction, rendering the assessment order non-est.

Section 124(3) of the Income-tax Act, which restricts an assessee from objecting to an Assessing Officer's jurisdiction, applies only to disputes concerning territorial jurisdiction as conferred by Section 120(1) or (2). It does not apply to objections regarding the Assessing Officer's inherent jurisdiction to frame an assessment.